Thursday’s economic calendar:
8:30 Housing Starts
8:30 Initial Jobless Claims
8:30 Current Account
10:00 Philly Fed Business Outlook
10:00 House Hearing: Financial Regulatory Reform
10:30 EIA Natural Gas Inventory
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
Up 1.26% yesterday, down 1.74% today — looks like volatility is back. The S&P 500 now up a mere 0.62% year-to-date but down 7.20% from the interim high of April 29. From a longer perspective, the index is 87.0% above the March 2009 closing low and 19.2% below the nominal all-time high of October 2007.
How bad of a month has June been? Well, so far there has not been a single day where the last hour of trading was positive. In the ten trading days we’ve seen this month, the S&P 500 has declined in the final hour by an average of 0.33%. Three o’clock close anyone?
Noted economist Robert Shiller said Wednesday there was a “substantial” probability the U.S. could lurch again into recession.
Noting weak global data — including a stubbornly depressed U.S. housing market — were flashing warning signs, the Yale University economist said the economy right now faced a “tipping point.”
“Forecasting models would say no” on the question of whether the U.S. will face a double-dip, Shiller said. “But I’m seeing signs that encourage me to worry about that.”
Shiller, who is one of the two men behind the S&P Case-Shiller home-price index, said home prices could still decline despite being lower than where they were more than five years ago. The summer season could see a pickup in prices, he said, but “I still worry about the general downtrend.”
“There might be a turnaround if psychology changes,” he said. But “I fear that it may just continue down.
“It just doesn’t look good,” he said in an interview with The Wall Street Journal.
General confidence about the economy is waning, Shiller said, leading to a so-called liquidity trap, in which the Federal Reserve has pumped the economy full of stimulus and consumers are still not opening their pockets.
“When the demand isn’t there, you can lower interest rates all the way to zero and people are still not willing to spend — that’s where we are right now,” Shiller said.
On the basis of the current macroeconomic assessment, it has been decided to:
- increase the repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 per cent to 7.5 per cent with immediate effect.
Consequent to the above increase in the repo rate, the reverse repo rate under the LAF will stand automatically adjusted to 6.5 per cent and the marginal standing facility (MSF) rate to 8.5 per cent with immediate effect.
The European bail-out fund should be doubled to 1,500 billion euros ($2.15 trillion) if politicians want private sector investors to participate in a second bail-out package for Greece, a European Central Bank governing council director said.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said financial markets have made “certain misreadings” on EU leaders’ intentions in the Greek debt crisis.
“There is a certain misreading of the intentions and future actions of the European leaders,” Rehn said today in a Bloomberg Television interview in Brussels. “We will not let the euro area face any kind of catastrophe.”
“We have always been concerned of contagion,” Rehn said. “One of the achievements over the past one-and-a-half years has been that we have been able to prevent a financial meltdown in Europe. We have been able to avoid a Lehman Brothers kind of catastrophe on the European soil. And moreover, we have been able to contain the crisis to the three countries now under the program,” he said.
Here are the links for bond yields for several countries (source: Bloomberg):
Greece 2 Year 5 Year 10 Year Portugal 2 Year 5 Year 10 Year Ireland 2 Year 5 Year 10 Year Spain 2 Year 5 Year 10 Year Italy 2 Year 5 Year 10 Year Belgium 2 Year 5 Year 10 Year France 2 Year 5 Year 10 Year Germany 2 Year 5 Year 10 Year
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